Conceived in the United Kingdom, the first social-impact bond project launched six years ago and combined public and private money to pay for a project aimed at reducing recidivism among prisoners in Peterborough, England.

The idea came from British venture capitalist Sir Ronald Cohen, who teamed private investors with nonprofits, government agencies and service-delivery organizations to reduce repeat incarcerations among men released from the Peterborough Prison.

Interim results show the project cut the rate of repeat offenses by 8.4% for the first 1,000 prisoners. Outcomes for the second group of 1,000 men are to be released next year. The project will be considered successful if it reduces recidivism by at least 7.5% over both groups. Then, the investors will see a return on their initial investment.

When the project debuted, "it ignited just tremendous worldwide interest in this really new, really innovative, really unproven and untested tool. The Americans heard about it," said Tracy Palandjian, CEO and co-founder of Social Finance U.S., which is affiliated with Cohen's Social Finance U.K.

Since then, 62 projects have been initiated in 15 countries, raising more than $200 million and touching the lives of at least 90,000 people. The bonds have been used in places such as Massachusetts, California, New York, Ohio and Utah to support programs that address homelessness and stabilize families with parents who have substance-abuse problems.

Twenty-one projects have reported early positive outcomes. It is still too soon to know whether other programs will meet their benchmarks.

In South Carolina, expanding the Nurse-Family Partnership with social-impact bonds wasn't simple. With the program showing success on a smaller scale in South Carolina, Joe Waters, executive vice president of the Greenville, S.C.,-based Institute for Child Success, helped broker a deal with the state Department of Health and Human Services, philanthropies and other organizations to expand the program to 29 counties and some of the lowest-income ZIP codes in the state. The Department of Health and Human Services applied for a waiver within the Medicaid program to use $13 million toward the project.

"It took almost three years to get the final contract and start enrolling with patients because we had to get federal approval from Medicaid," said Sue Williams, CEO of the Children's Trust of South Carolina.

As part of the project, J-PAL North America, a research center at the Massachusetts Institute of Technology, will conduct a randomized-control trial, studying the outcomes to determine whether it is successful.

"This is clearly not going to supplant the way government works at large, nor supplant philanthropy ... but it’s a new way of drawing in private resources and to unlock more resources to bear on problems that are only getting larger in a resource-constrained environment," said Palandjian.

Organizers hope it’s sustainable.

"All the data that I’ve seen ... when rounding it off, you get a $5 return for every dollar you invest in Nurse-Family Partnership," said Harvey Galloway, executive director of the BlueCross BlueShield of South Carolina Foundation.

The philanthropic organizations funding the program in South Carolina — the Duke Endowment, the BlueCross BlueShield foundation, Boeing, Greenville First Steps, the Laura and John Arnold Foundation, and a consortium of other private funders — won't keep the returns on their investments. The state will be able to pump its reimbursement dollars back into the program to keep it running.

“We think by then, we’ll have a strong case to take to the Legislature … and say, ‘Look, we’ve proven with a randomized-control trial study in your state that we can actually get better outcomes and better savings through Medicaid by investing in this program,' " said Rhett Mabry, president of the Duke Endowment. “So we think it’ll make an easy sell to get South Carolina to invest in the program beyond the length of the contract."

Social Impact Bond Review

Resource for those interested in Pay for Success finance. The site maintains up-to-date news and media mentions, a 'Practitioner's Toolkit', general resources, PFS activity trackers, and other information.

Subscribe

A weekly newsletter that recaps Pay for Success, Social Impact Bond, and other relevant news.